QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission file number: 1-9900

PACIFIC OFFICE PROPERTIES TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland

86-0602478

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

841 Bishop Street, Suite 1700

Honolulu, Hawaii 96813

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (808) 521-7444

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)

Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 12, 2014 there were issued and outstanding 3,941,142 shares of Class A Common Stock, par value $0.0001 per share; 100 shares of Class B Common Stock, par value $0.0001 per share; and 2,410,839 shares of Senior Common Stock, par value $0.0001 per share.

Senior Common Stock, $0.0001 par value per share (liquidation preference $10 per share, $24,108 as of June 30, 2014 and December 31, 2013) 40,000,000 shares authorized, 2,410,839 shares issued and outstanding at June 30, 2014 and December 31, 2013

21,459

21,459

Class A Common Stock, $0.0001 par value per share, 599,999,900 shares authorized, 3,941,142 shares issued and outstanding at June 30, 2014 and December 31, 2013

185

185

Class B Common Stock, $0.0001 par value per share, 100 shares authorized, issued and outstanding at June 30, 2014 and December 31, 2013

—

—

Additional paid-in capital

110

110

Cumulative deficit

(168,592

)

(166,225

)

Total stockholders’ equity (deficit)

(146,838

)

(144,471

)

Non-controlling interests:

Preferred unitholders in the Operating Partnership

127,268

127,268

Common unitholders in the Operating Partnership

(75,796

)

(67,329

)

Total equity (deficit)

(95,366

)

(84,532

)

Total liabilities and equity (deficit)

$

279,352

$

288,571

See accompanying notes to consolidated financial statements.

1

Pacific Office Properties Trust, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

For the three months ended

June 30,

2014

2013

Revenue

Rental

$

5,039

$

5,209

Tenant reimbursements

4,317

4,113

Parking

1,429

1,416

Other

85

144

Total revenue

10,870

10,882

Expenses

Rental property operating

6,543

6,607

General and administrative

453

512

Depreciation and amortization

2,768

2,675

Interest

5,079

4,943

Total expenses

14,843

14,737

Loss from continuing operations before equity in net loss of unconsolidated joint ventures

(3,973

)

(3,855

)

Equity in net loss of unconsolidated joint ventures

(950

)

(103

)

Loss from continuing operations

(4,923

)

(3,958

)

Loss from discontinued operations

(205

)

(169

)

Net loss

(5,128

)

(4,127

)

Net (income) loss attributable to non-controlling interests:

Preferred unitholders in the Operating Partnership

(568

)

(568

)

Common unitholders in the Operating Partnership

4,794

4,012

Net loss attributable to non-controlling interests

4,226

3,444

Net loss attributable to common stockholders before dividends paid and accrued on Senior Common Stock

(902

)

(683

)

Dividends paid and accrued on Senior Common Stock

(438

)

(438

)

Net loss attributable to common stockholders

$

(1,340

)

$

(1,121

)

Loss per common share:

Loss from continuing operations

$

(0.33

)

$

(0.27

)

Loss from discontinued operations

(0.01

)

(0.01

)

Net loss per common share - basic and diluted

$

(0.34

)

$

(0.28

)

Weighted average number of common shares outstanding - basic and diluted

The terms “Pacific Office Properties,” “us,” “we,” and “our” as used in this Quarterly Report on Form 10-Q refer to Pacific Office Properties Trust, Inc., a Maryland corporation (the “Company”), and its subsidiaries and joint ventures. Through our controlling interest in Pacific Office Properties, L.P. (the “Operating Partnership”), of which we are the sole general partner, and the subsidiaries of the Operating Partnership, we own and operate primarily institutional-quality office properties in Hawaii. We operate in a manner that permits us to satisfy the requirements for taxation as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986 (the “Code”).

We are externally advised by Shidler Pacific Advisors, LLC (“Shidler Pacific Advisors”), an entity that is owned and controlled by Jay H. Shidler (“Mr. Shidler”), our Chairman of the Board. Lawrence J. Taff, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, also serves as President of Shidler Pacific Advisors. Shidler Pacific Advisors is responsible for the day-to-day operation and management of the Company, including management of our wholly-owned properties.

Through our Operating Partnership, as of June 30, 2014, we owned four office properties comprising 1.2 million rentable square feet and were partners with third parties in four joint ventures (of which we have managing ownership interests in one), holding six office properties comprising 12 buildings and 1.1 million rentable square feet (the “Property Portfolio”). One of our joint ventures also owns a sports club associated with our City Square property in Phoenix, Arizona. Our ownership interest percentages in these joint ventures range from 5.0% to 32.2%. As of June 30, 2014, our Property Portfolio included office buildings in Honolulu, Phoenix and certain submarkets of San Diego and Los Angeles.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements and related disclosures included herein have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform to the current period presentation with no corresponding net effect on the previously reported consolidated results of operations, or financial position of the Company.

Principles of Consolidation

The accompanying consolidated financial statements include the account balances and transactions of consolidated subsidiaries, which are wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

Liquidity

Our business is capital intensive and our ability to maintain our operations depends on our cash flow from operations and our ability to raise additional capital on acceptable terms. Our primary focus is to preserve and generate cash.

(if available), refinancing of existing debt or through other available investment and financing activities, including the contribution of existing wholly-owned assets to joint ventures (partial sell-down of equity interests in wholly-owned assets), asset dispositions and/or additional secured or unsecured debt financings. In February 2013, we completed the sale of our Bank of Hawaii Waikiki Center joint venture property to an unrelated third party. In May 2014, we entered into a Purchase and Sale Agreement to sell our fee and leasehold interest in our Clifford Center property, located in Honolulu, Hawaii. The completion of the sale transaction is scheduled to occur in the third quarter of 2014, subject to customary closing conditions. We cannot be certain that we will be able to complete the sale of our Clifford Center property within that timeframe or at all. We may also consider strategic alternatives, including a sale, merger, other business combination or recapitalization, of the Company.

We are focused on ensuring our properties are operating as efficiently as possible. We have taken steps to identify, and continue to seek, opportunities to reduce discretionary operating costs wherever possible and at the same time maintaining the quality of our buildings and the integrity of our management services. We have no employees and rely upon our advisor to provide substantially all of our day-to-day management. We believe that Shidler Pacific Advisors can provide adequate personnel resources, at lower cost to us, for our current and prospective business.

Capital expenditures fluctuate in any given period, subject to the nature, extent and timing of improvements required to maintain our properties. Leasing costs also fluctuate in any given period, depending upon such factors as the type of property, the term of the lease, the type of lease and overall market conditions. Our costs for capital expenditures and leasing fall into two categories: (1) amounts that we are contractually obligated to spend and (2) discretionary amounts. As of June 30, 2014, we were obligated to spend $2.7 million in capital expenditures and leasing costs through the remainder of 2014.

As of June 30, 2014, our total consolidated debt (which includes our mortgage and other loans with a carrying value of $290.7 million, our mortgage loans of our assets held for sale with a carrying value of $6.5 million and our unsecured promissory notes with a carrying value of $29.4 million) was $326.6 million, with a weighted average interest rate of 5.74% and a weighted average remaining term of 2.14 years. Our Clifford Center mortgage loan with an outstanding principal amount of $2.0 million as of June 30, 2014 is scheduled to mature on August 15, 2014. We intend to work with the lender on extending the maturity of this loan and to repay it upon closing of the proposed sale of this property, but there can be no assurance that we will be successful in doing so.

While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed.

Investments in Real Estate

We account for acquisitions of real estate utilizing the purchase method and, accordingly, the results of operations of acquired properties are included in our results of operations from the respective dates of acquisition.

Investments in real estate properties are stated at cost, less accumulated depreciation, amortization and impairment. A portion of certain assets comprising the properties contributed at the time of our formation transactions in 2008 (the “Contributed Properties”) are stated at their historical net cost basis in an amount attributable to the ownership interests in the Contributed Properties owned by Mr. Shidler. Additions to land, buildings and improvements, furniture, fixtures and equipment and construction in progress are recorded at cost.

Transaction costs related to acquisitions are expensed. Costs associated with developing space for its intended use are capitalized and amortized over their estimated useful lives, commencing at the later of the improvement completion date or the lease commencement date.

Estimates of future cash flows and other valuation techniques are used to allocate the acquisition cost of acquired properties among land, buildings and improvements, and identifiable intangible assets and liabilities such as amounts related to in-place at-market leases, acquired below-market leases, and acquired above- and below-market ground leases.

The fair values of real estate assets acquired are determined on an “as-if-vacant” basis. The “as-if-vacant” fair value is allocated to land, and where applicable, buildings, tenant improvements and equipment based on comparable sales and other relevant information obtained in connection with the acquisition of the property.

7

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Fair value is assigned to below-market leases based on the difference between (a) the contractual amounts to be paid by the tenant based on the existing lease and (b) management’s estimate of current market lease rates for the corresponding in-place leases, over the remaining terms of the in-place leases. Capitalized below-market lease amounts are reflected in “Acquired below-market leases, net,” in the consolidated balance sheets and are amortized as an increase in rental revenue over the remaining initial non-cancellable lease terms plus the terms of any below-market fixed rate renewal options that are considered bargain renewal options. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance, net of the security deposit, of the related intangible is written off.

Fair value is also assigned to tenant relationships. Capitalized tenant relationship amounts are included in “Intangible assets, net” in the accompanying consolidated balance sheets and are amortized to “Depreciation and amortization” in the accompanying consolidated statements of operations. Amounts are amortized over the remaining terms of the respective leases even if a tenant vacates prior to the contractual termination of the lease. An adjustment to tenant relationship amounts occurs should the property experience an impairment loss.

The aggregate value of other acquired intangible assets consists of acquired in-place leases. The fair value allocated to acquired in-place leases consists of a variety of components including, but not necessarily limited to: (a) the value associated with avoiding the cost of originating the acquired in-place lease (i.e. the market cost to execute a lease, including leasing commissions and legal fees, if any); (b) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period (i.e. real estate taxes, insurance and other operating expenses); (c) the value associated with lost rental revenue from existing leases during the assumed lease-up period; and (d) the value associated with any other inducements to secure a tenant lease. The value assigned to acquired in-place leases is amortized over the remaining lives of the related leases.

We record the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit on an annual basis, during the fourth quarter of each calendar year, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. See “Goodwill” below. An impairment loss for an asset group is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset shall not reduce the carrying amount of that asset below its fair value. A description of our testing policy is set forth in “Impairment of Long-Lived Assets” below.

Impairment of Long-Lived Assets

In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, we assess the potential for impairment of our long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicate that the recorded carrying value might not be fully recoverable. Indicators of potential impairment include significant decreases in occupancy levels and/or rental rates or a change in strategy that results in a decreased holding period. We determine whether impairment in value has occurred by comparing the estimated future cash flows, undiscounted and excluding interest, expected from the use and eventual disposition of the asset to its carrying value. If the undiscounted cash flows do not exceed the carrying value, the real estate or intangible carrying value is reduced to fair value and impairment loss is recognized. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. For the three and six month periods ended June 30, 2014, we recorded non-cash impairment charges of $0.2 million on our Clifford Center property, as a result of the property’s fair value being below its current carrying value, in connection with the anticipated sale of the property. The non-cash impairment charges are included in “Loss from discontinued operations” on the consolidated statement of operations. No impairment charges for our wholly-owned properties were recorded for the three and six month periods ended June 30, 2013.

Investments in Unconsolidated Joint Ventures

Our investments in joint ventures are accounted for under the equity method of accounting because we exercise significant influence over, but do not control, our joint ventures. Our joint venture partners have substantive participating rights, including approval of and participation in setting operating budgets. Accordingly, we have determined that the equity method of accounting is appropriate for our investments in joint ventures.

Investments in unconsolidated joint ventures are initially recorded at cost and are subsequently adjusted for our proportionate equity in the net income or net loss of the joint ventures, contributions made to, or distributions received from, the joint ventures and other adjustments. We record distributions of operating profit from our investments in unconsolidated joint ventures as part

8

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

of cash flows from operating activities and distributions related to a capital transaction, such as a refinancing transaction or sale, as investing activities in the consolidated statements of cash flows.

The difference between the initial cost of the investment in our joint ventures included in our consolidated balance sheet and the underlying equity in net assets of the respective joint ventures (“JV Basis Differential”) is amortized as an adjustment to equity in net income or net loss of the joint ventures in our consolidated statements of operations over the estimated useful lives of the underlying assets of the respective joint ventures.

We evaluate all investments in accordance with the guidance of FASB Accounting Standards Update 2009-17, Consolidations (Topic 810):Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which requires ongoing assessments of the investments to determine whether or not they are variable interest entities (“VIEs”) and if they are VIEs, whether or not we are determined to be the primary beneficiary. We would consolidate a VIE if it is determined that we are the primary beneficiary. We use qualitative analyses to determine whether we are the primary beneficiary of a VIE. Consideration of various factors could include, but is not limited to, the purpose and design of the VIE, risks that the VIE was designed to create and pass through, the form of our ownership interest, our representation of the entity’s governing body, the size and seniority of our investment, our ability to participate in policy making decisions, and the rights of the other investors to participate in the decision making process and to replace us as manager and/or liquidate the venture, if applicable. We currently do not hold any investments in VIEs.

Impairment of Investments in Unconsolidated Joint Ventures

Our investment in unconsolidated joint ventures is subject to a periodic impairment review and is considered to be impaired when a decline in fair value is judged to be other-than-temporary. An investment in an unconsolidated joint venture that we identify as having an indicator of impairment is subject to further analysis to determine if the investment is other than temporarily impaired, in which case we write down the investment to its estimated fair value. In the second quarter of 2014, we noted uncertainty surrounding the recoverability of our investment in the POP San Diego joint venture and as a result, we recorded a non-cash impairment charge of approximately $0.9 million during the three and six month periods ended June 30, 2014 to write off our investment. The charge is included in “Equity in net (loss) earnings of unconsolidated joint ventures” on the consolidated statement of operations. No impairment charges were recorded in our investments in unconsolidated joint ventures for the three and six month periods ended June 30, 2013.

Discontinued Operations

The revenue, expenses, impairment and/or gain on sale of operating properties that meet the applicable criteria are reported as discontinued operations in the consolidated statement of operations. A gain on sale, if any, is recognized in the period the property is disposed of.

In determining whether to report the results of operations, impairment and/or gain on sale of operating properties as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing or management of the property after disposition. If we determine that we have significant continuing involvement after disposition, we report the revenue, expenses, impairment and/or gain on sale as part of continuing operations.

We classify properties as held for sale when certain criteria set forth in the Long-Lived Assets Classified as Held for Sale Subsections of FASB ASC 360, Property, Plant and Equipment, are met, including when we receive cash deposits towards the purchase of our properties. At that time, we present the non-cash assets and liabilities of the property held for sale separately in our consolidated balance sheet. We cease recording depreciation and amortization expense at the time a property is classified as held for sale. Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell. As of June 30, 2014, the Clifford Center property is classified as held for sale. Accordingly, we ceased recording depreciation and amortization on this property beginning in June 2014. The results of its operations for the three and six month periods ended June 30, 2014 and 2013 are included in “Discontinued operations” in the accompanying consolidated statements of operations.

Goodwill

We record the excess cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment on an annual basis during the fourth quarter of each calendar year, or more frequently if circumstances indicate that a possible impairment has occurred.

9

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

The assessment of impairment involves a two-step process whereby an initial assessment for potential impairment is performed, followed by a measurement of the amount of impairment, if any. Impairment testing is performed using the fair value approach, which requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment, or a business that is one level below the operating segment if discrete financial information is prepared and regularly reviewed by management at that level. The reporting unit’s fair value is calculated as the discounted future cash flows based on management’s best estimate of the applicable capitalization and discount rates. If the carrying value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. An impairment charge is recognized as a charge against income equal to the excess of the carrying value of goodwill over its implied value on the date of the impairment. Factors that may cause goodwill to be impaired include, but may not be limited to, a sustained decline in our stock price and the occurrence, or sustained existence, of adverse economic conditions or decreased cash flow from our properties.

We consider our consolidated properties one reporting unit due to similar geographic and economic characteristics. As of June 30, 2014, goodwill of our consolidated properties amounted to $39.1 million.

Revenue Recognition

The following four criteria must be met before we recognize revenue and gains:

•

persuasive evidence of an arrangement exists;

•

the delivery has occurred or services rendered;

•

the fee is fixed and determinable; and

•

collectability is reasonably assured.

All of our tenant leases are classified as operating leases. For all leases with scheduled rent increases or other adjustments, minimum rental income is recognized on a straight-line basis over the terms of the related leases. Straight-line rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents and this amount is included in “Deferred rents” on the accompanying consolidated balance sheets. The straight line rent adjustment included in “Rental revenues” in the accompanying consolidated statements of operations was $(0.15) million and $0.08 million for the three months ended June 30, 2014 and 2013, respectively, and $(0.04) million and $0.14 million for the six months ended June 30, 2014 and 2013, respectively. Reimbursements from tenants for real estate taxes, excise taxes and other recoverable operating expenses are recognized as revenues in the period the applicable costs are incurred.

Capitalized below-market lease amounts are amortized as an increase to rental revenue over the remaining initial non-cancellable lease terms plus the terms of any below-market fixed rate renewal options that are considered bargain renewal options.

We have leased space to certain tenants under non-cancellable operating leases, which provide for percentage rents based upon tenant revenues. Percentage rental income is recorded in “Rental revenues” in the accompanying consolidated statements of operations.

Rental revenue from parking operations and month-to-month leases or leases with no scheduled rent increases or other adjustments is recognized on a monthly basis when earned.

Lease termination fees, which are included in “Other revenues” of the accompanying consolidated statements of operations, are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

Other revenue on the accompanying consolidated statements of operations generally includes income incidental to our operations and is recognized when earned.

Tenant Receivables

Tenant receivables are recorded and carried at the amount billable per the applicable lease agreement, less any allowance for doubtful accounts. An allowance for doubtful accounts is made when collection of the full amounts is no longer considered probable. Tenant receivables are included in “Rents and other receivables, net,” in the accompanying consolidated balance sheets. If a tenant fails to make contractual payments beyond any allowance, we may recognize bad debt expense in future periods equal to the amount of unpaid rent. We take into consideration factors including historical termination, default activity and current economic

10

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

conditions to evaluate the level of reserve necessary. We had an allowance for doubtful accounts of $0.2 million and $0.6 million, as of June 30, 2014 and December 31, 2013, respectively.

We had a total of $1.6 million and $1.8 million of lease security available in security deposits, as of June 30, 2014 and December 31, 2013, respectively.

Cash and Cash Equivalents

We consider all short-term cash investments with maturities of three months or less when purchased to be cash equivalents. Restricted cash is excluded from cash and cash equivalents for the purpose of preparing our consolidated statements of cash flows.

We maintain cash balances in various financial institutions. At times, the amounts of cash held in financial institutions may exceed the maximum amount insured by the Federal Deposit Insurance Corporation. We do not believe that we are exposed to any significant credit risk on our cash and cash equivalents.

Mortgage and other loans assumed upon acquisition of related real estate properties are stated at estimated fair value upon their respective dates of assumption, net of unamortized discounts or premiums to their outstanding contractual balances. Amortization of discount and the accretion of premiums on mortgage and other loans assumed upon acquisition of related real estate properties are recognized from the date of assumption through their contractual maturity date using the straight line method, which approximates the effective interest method.

Deferred Loan Fees

Deferred loan fees include fees and costs incurred in conjunction with long-term financings and are amortized over the terms of the related debt using a method that approximates the effective interest method. Deferred loan fees are included in “Other assets, net” in the accompanying consolidated balance sheets. Amortization of deferred loan fees is included in “Interest” in the accompanying consolidated statements of operations.

Repairs, Maintenance and Major Improvements

The costs of ordinary repairs and maintenance are included when incurred in “Rental property operating” expenses in the accompanying consolidated statements of operations. Major improvements that extend the life of an asset are capitalized and depreciated over the remaining useful life of the asset. Various lenders have required us to maintain reserve accounts for the funding of future repairs and capital expenditures, and the balances of these accounts are included in “Restricted cash” on the accompanying consolidated balance sheets.

Leasing Commissions

Leasing commissions are capitalized and amortized on a straight line basis over the life of the related lease. The payment of leasing commissions is included in “Investing activities” on the accompanying consolidated statements of cash flows because we believe that paying leasing commissions for good tenants is a prudent investment in increasing the value of our income-producing assets.

Depreciation and Amortization

Depreciation and amortization are computed using the straight-line method for financial reporting purposes. Buildings and improvements are depreciated over their estimated useful lives which range from five to 42 years. Tenant improvement costs recorded as capital assets are depreciated over the shorter of the tenant’s remaining lease term or the life of the improvement. Furniture, fixtures and equipment are depreciated over three to seven years. Properties that are acquired that are subject to ground

11

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

leases are depreciated over the lesser of the useful life or the remaining life of the related leases as of the date of assumption of the lease.

Non-Controlling Interests

We account for non-controlling interests in accordance with FASB ASC 810, Consolidation. In accordance with FASB ASC 810, we report non-controlling interests in subsidiaries within equity in the consolidated financial statements, but separate from the parent stockholders’ equity. Net income attributable to non-controlling interests is presented as a reduction from net income in calculating net income available to common stockholders on the statement of operations. Acquisitions or dispositions of non-controlling interests that do not result in a change of control are accounted for as equity transactions. In addition, FASB ASC 810 requires that a parent company recognize a gain or loss in net income when a subsidiary is deconsolidated upon a change in control. In accordance with FASB ASC 480-10, Distinguishing Liabilities from Equity, non-controlling interests that are determined to be redeemable are carried at their redemption value as of the balance sheet date and reported as temporary equity. We periodically evaluate individual non-controlling interests for the ability to continue to recognize the non-controlling interest as permanent equity in the consolidated balance sheets. Any non-controlling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period in which the determination is made, the resulting adjustment is recorded in the consolidated statement of operations. See Note 11 for a more detailed discussion.

Preferred Units

The Class A convertible preferred units of the Operating Partnership (“Preferred Units”) have fixed rights to distributions at an annual rate of 2% of their liquidation preference of $25 per Preferred Unit. Accordingly, income or loss of the Operating Partnership is allocated among the general partner interest and limited partner common interests after taking into consideration distribution rights allocable to the Preferred Units.

Earnings (Loss) per Share

We present both basic and diluted earnings (loss) per share (“EPS”). Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during each period.

Diluted EPS is computed by dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares that would have been outstanding for the period, assuming the issuance of common shares for all potentially dilutive common shares outstanding during such period.

Income Taxes

We have elected to be taxed as a REIT under the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we currently distribute at least 90% of our REIT taxable income to our stockholders. Also, at least 95% of gross income in any year must be derived from qualifying sources. We intend to adhere to these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate level federal income tax on taxable income that we distribute currently to our stockholders. However, we may be subject to certain state and local taxes on our income and property, and to federal income and excise taxes on our undistributed taxable income, if any. Management believes that we have distributed and will continue to distribute a sufficient majority of our taxable income, if any, in the form of dividends and distributions to our stockholders and unit holders. Accordingly, we have not recognized any provision for income taxes.

Pursuant to the Code, we may elect to treat certain of our newly created corporate subsidiaries as taxable REIT subsidiaries (“TRS”). In general, a TRS may perform non-customary services for our tenants, hold assets that we cannot hold directly and generally engage in any real estate or non-real estate related business. A TRS is subject to corporate federal income tax. One of our subsidiaries, Pacific Office Management, Inc., a Delaware corporation (“Pacific Office Management”), has elected to be treated as a TRS for federal income tax purposes.

Recent Accounting Pronouncements

In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”), which amended the criteria for reporting discontinued

12

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

operations and expanded related disclosure requirements. Under ASU 2014-08, a discontinued operation is defined as 1) a component or group of components of an entity that has been disposed of by sale, disposed of other than by sale or is classified as held for sale that represents a strategic shift that has or will have a major effect on the entity’s operations and financial results, or 2) an acquired business activity that is classified as held for sale. A strategic shift could include the disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity. ASU 2014-08 is effective prospectively for reporting periods beginning on or after December 15, 2014. We do not expect the adoption of this pronouncement to have a material effect on our consolidated financial statements or disclosures.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 establishes that companies may recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. We do not expect the adoption of this pronouncement to have a material effect on our consolidated financial statements or disclosures.

3. Investments in Real Estate, net

Our investments in real estate, net, at June 30, 2014 (unaudited), and at December 31, 2013, are summarized as follows (in thousands):

June 30, 2014

December 31, 2013

Land and land improvements

$

33,819

$

38,871

Building and building improvements

194,791

198,288

Tenant improvements

31,936

31,980

Construction in progress

594

832

Furniture, fixtures and equipment

1,319

1,318

Investments in real estate

262,459

271,289

Less: accumulated depreciation

(58,992

)

(57,481

)

Investments in real estate, net

$

203,467

$

213,808

13

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

4. Intangible Assets and Acquired Below-Market Leases, net

Our identifiable intangible assets and acquired below-market leases, net, at June 30, 2014 (unaudited), and at December 31, 2013, are summarized as follows (in thousands):

June 30, 2014

December 31, 2013

Acquired leasing commissions:

Gross amount

$

6,989

$

7,001

Accumulated amortization

(4,008

)

(3,858

)

Acquired leasing commissions, net

2,981

3,143

Acquired leases in place:

Gross amount

5,799

5,987

Accumulated amortization

(5,669

)

(5,838

)

Acquired leases in place, net

130

149

Acquired tenant relationship costs:

Gross amount

9,254

9,736

Accumulated amortization

(7,821

)

(7,792

)

Acquired tenant relationship costs, net

1,433

1,944

Acquired other intangibles:

Gross amount

3,143

3,085

Accumulated amortization

(1,076

)

(1,048

)

Acquired other intangibles, net

2,067

2,037

Intangible assets, net

$

6,611

$

7,273

Acquired below-market leases:

Gross amount

$

6,683

$

6,780

Accumulated amortization

(3,089

)

(3,056

)

Acquired below-market leases, net

$

3,594

$

3,724

5. Investments in Unconsolidated Joint Ventures

At June 30, 2014, we were partners with third parties in four joint ventures (of which we have managing ownership interests in one), holding six office properties, comprised of 12 buildings and 1.1 million rentable square feet. One of our joint ventures also owns a sports club associated with our City Square property in Phoenix, Arizona. Our ownership interest percentages in these joint ventures range from 5.0% to 32.2%. For some of these joint ventures, in exchange for our managing ownership interest and related equity investment, we are entitled to fees, preferential allocations of earnings and cash flows.

In February 2013, one of our unconsolidated joint ventures sold its Bank of Hawaii Waikiki Center property, located in Honolulu, Hawaii, to an unaffiliated third party. Net proceeds from the sale of the property, which was previously owned by one of our unconsolidated joint ventures, were used to repay the mortgage note payable and other transaction related expenses, and then distributed to the members of the joint venture, including us. Final cash distributions were made to the members of the joint venture in March 2014 after dissolution and related costs were paid. The related JV Basis Differential amounting to $(0.1) million, which was included in “Investments in unconsolidated joint ventures” as of December 31, 2013 in the accompanying consolidated balance sheets, was subsequently written off as of March 31, 2014. For each of the six month periods ended June 30, 2014 and

14

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

2013, we recognized an insignificant amount of amortization expense attributable to the JV Basis Differential, which is included in “Equity in net (loss) earnings of unconsolidated joint ventures” in the accompanying consolidated statements of operations.

We account for our investments in joint ventures under the equity method of accounting.

Loss before gain on sale of properties and loss on extinguishment of debt

(502

)

(1,279

)

(2,038

)

(2,065

)

Gain on sale of properties

—

22

—

26,907

Loss on extinguishment of debt

—

—

—

(946

)

Net (loss) income

$

(502

)

$

(1,257

)

$

(2,038

)

$

23,896

Equity in net (loss) earnings of unconsolidated joint ventures(1)

$

(950

)

$

(103

)

$

(1,061

)

$

956

(1)

For the three and six months ended June 30, 2014, equity in net (loss) earnings of unconsolidated joint ventures includes a non-cash impairment charge of approximately $0.9 million to write off our investment in the POP San Diego joint venture as a result of uncertainty surrounding the recoverability of our investment.

June 30, 2014

December 31, 2013

Investment in real estate, net

$

96,251

$

95,558

Other assets

17,027

18,509

Total assets

$

113,278

$

114,067

Mortgage and other loans

$

81,253

$

81,143

Other liabilities

4,293

4,176

Total liabilities

$

85,546

$

85,319

Investments in unconsolidated joint ventures

$

1,346

$

2,442

15

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

6. Other Assets, net

Other assets, net, at June 30, 2014 (unaudited), and at December 31, 2013, consist of the following (in thousands):

June 30, 2014

December 31, 2013

Deferred loan fees, net of accumulated amortization of $1.6 million and $1.5 million at June 30, 2014 and December 31, 2013, respectively

$

451

$

580

Prepaid expenses

595

840

Total other assets, net

$

1,046

$

1,420

7. Accounts Payable and Other Liabilities

Accounts payable and other liabilities at June 30, 2014 (unaudited), and at December 31, 2013, consist of the following (in thousands):

June 30, 2014

December 31, 2013

Accounts payable

$

736

$

366

Interest payable

908

971

Deferred revenue

1,288

1,026

Security deposits

1,638

1,789

Deferred straight-line ground rent

15,608

14,588

Accrued distributions attributable to Preferred Units

7,954

6,818

Accrued expenses

4,005

5,789

Asset retirement obligations

604

654

Total accounts payable and other liabilities

$

32,741

$

32,001

8. Mortgage and Other Loans

The following table sets forth a summary of our mortgage and other loans, net of discount, at June 30, 2014 (unaudited), and at December 31, 2013 (in thousands). The interest rate of each loan is fixed unless otherwise indicated in the footnotes to the table:

Outstanding Principal Balance, Net at

Property

June 30, 2014

December 31, 2013

Interest Rate

Maturity Date

Clifford Center(1)(2)

$

—

$

2,149

4.375

%

8/15/2014

Clifford Center Land(2)

—

4,653

4.00

%

2/17/2017

Pan Am Building

59,988

59,986

6.17

%

8/11/2016

Waterfront Plaza

100,000

100,000

6.37

%

9/11/2016

Waterfront Plaza

11,000

11,000

6.37

%

9/11/2016

Davies Pacific Center

94,680

94,612

5.86

%

11/11/2016

Subtotal

265,668

272,400

Revolving line of credit(3)

25,000

25,000

1.10

%

12/31/2015

Total mortgage and other loans, net

$

290,668

$

297,400

(1)

The interest rate on the Clifford Center loan is a fluctuating annual rate equal to the lender’s prime rate. We intend to work with the lender on extending the maturity of this loan and to repay it upon closing of the proposed sale of this property, but there can be no assurance that we will be successful in doing so.

16

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

(2)

As of June 30, 2014, the outstanding balances of the Clifford Center and Clifford Center Land loans were $2.0 million and $4.6 million, respectively, and are included in “Mortgage and other liabilities of real estate assets held for sale” in the accompanying consolidated balance sheets.

(3)

The revolving line of credit matures on December 31, 2015. Amounts borrowed under the revolving line of credit bear interest at a fluctuating annual rate equal to the effective rate of interest paid by the lender on time certificates of deposit, plus 1.00%. See “Revolving Line of Credit” below.

The lenders’ collateral for notes payable, with the exception of the Clifford Center note payable, is the property and, in some instances, cash reserve accounts, ownership interests in the underlying entity owning the real property, leasehold interests in certain ground leases and rights under certain service agreements. The lenders’ collateral for the Clifford Center note payable is the leasehold property as well as guarantees from affiliates of the Company. The Operating Partnership has agreed to indemnify these affiliates (Jay H. Shidler and James C. Reynolds, who beneficially owns 12% of our Class A Common Stock) to the extent of their guaranty liability. In management’s judgment, it would be a remote possibility for us to incur any material liability under these indemnities that would have a material adverse effect on our financial condition, results of operations or cash flows.

The existing and scheduled maturities for our mortgages and other loans (excluding the loans related to our Clifford Center property classified under “Mortgage and other liabilities of real estate assets held for sale” in the accompanying consolidated balance sheets) for the periods succeeding June 30, 2014 are as follows (in thousands and includes scheduled principal paydowns):

2014

$

—

2015

25,000

2016

266,000

Total mortgage and other loans(1)

$

291,000

(1)

This balance is the gross amount and does not include the discount of $0.3 million which is included in the outstanding balance of $290.7 million as shown in “Mortgage and other loans, net,” in the accompanying consolidated balance sheet.

Revolving Line of Credit

On September 2, 2009, we entered into a Credit Agreement (the “FHB Credit Facility”) with First Hawaiian Bank (the “Lender”). The FHB Credit Facility initially provided us with a revolving line of credit in the principal sum of $10 million. On December 31, 2009, we amended the FHB Credit Facility to increase the maximum principal amount available for borrowing under the revolving line of credit to $15 million. On May 25, 2010, we entered into an amendment with the Lender to increase the maximum principal amount available for borrowing thereunder from $15 million to $25 million and to extend the maturity date from September 2, 2011 to December 31, 2013. On December 31, 2013, we entered into an amendment with the Lender to extend the maturity date from December 31, 2013 to December 31, 2015. Amounts borrowed under the FHB Credit Facility bear interest at a fluctuating annual rate equal to the effective rate of interest paid by the lender on time certificates of deposit, plus 1.00%. We are permitted to use the proceeds of the line of credit for working capital and general corporate purposes, consistent with our real estate operations and for such other purposes as the Lender may approve. As of June 30, 2014 and December 31, 2013, we had outstanding borrowings of $25.0 million under the FHB Credit Facility. During each of the three and six month periods ended June 30, 2014 and 2013, we recognized $0.1 million in interest to the Lender.

As security for the FHB Credit Facility, as amended, Shidler Equities, L.P., a Hawaii limited partnership controlled by Mr. Shidler (“Shidler LP”), has pledged to the Lender a certificate of deposit in the principal amount of $25.0 million. As a condition to this pledge, the Operating Partnership and Shidler LP entered into an indemnification agreement pursuant to which the Operating Partnership agreed to indemnify Shidler LP from any losses, damages, costs and expenses incurred by Shidler LP in connection with the pledge. In addition, to the extent that all or any portion of the certificate of deposit is withdrawn by the Lender and applied to the payment of principal, interest and/or charges under the FHB Credit Facility, the Operating Partnership agreed to pay to Shidler LP interest on the withdrawn amount at a rate of 7.0% per annum from the date of the withdrawal until the date of repayment in full by the Operating Partnership to Shidler LP. Pursuant to this indemnification agreement, as amended, the Operating Partnership also agreed to pay to Shidler LP an annual fee of 2.0% of the entire $25.0 million principal amount of the certificate of deposit. During each of the three month periods ended June 30, 2014 and 2013, we recognized $0.1 million in interest to Shidler LP for the annual fee. During each of the six month periods ended June 30, 2014 and 2013, we recognized $0.2 million in interest to Shidler LP for the annual fee.

17

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

The FHB Credit Facility contains various customary covenants, including covenants relating to disclosure of financial and other information to the Lender, maintenance and performance of our material contracts, our maintenance of adequate insurance, payment of the Lender’s fees and expenses, and other customary terms and conditions.

9. Unsecured Notes Payable to Current and Former Related Parties

At June 30, 2014 and December 31, 2013, we had promissory notes payable by the Operating Partnership to certain current and former affiliates in the aggregate outstanding principal amounts of $29.4 million and $21.1 million, respectively.

In 2008, we issued $21.1 million of promissory notes as consideration for having funded certain capital improvements prior to the completion of our formation transactions and upon the exercise of an option granted to us by POP Venture, LLC (“Venture”) and its affiliates as part of our formation transactions in 2008. The promissory notes accrue interest at a rate of 7%, per annum, with interest payable quarterly, subject to the Operating Partnership’s right to defer the payment of interest for any or all periods until the date of maturity. The promissory notes were originally scheduled to mature on various dates commencing on March 19, 2013 through August 31, 2013, but the Operating Partnership elected to extend the maturity for one additional year. In February 2014, we agreed with the holders of these notes to extend the maturity date of the notes to December 31, 2015.

In February 2014, we issued to certain current and former affiliates additional promissory notes in the aggregate principal amount of $8.3 million to settle claims under tax protection agreements relating to the sale of our First Insurance Center property in 2012. See “Tax Protection Arrangements” in Note 10 for additional information. These promissory notes accrue interest at a rate of 5% per annum, with interest payable quarterly, subject to the Operating Partnership’s right to defer the payment of interest for any or all periods until the date of maturity. The stated maturity date for each of these promissory notes is December 31, 2015 and is included in “Unsecured notes payable to current and former related parties” in the accompanying consolidated balance sheets as of June 30, 2014.

The maturity of the Operating Partnership’s promissory notes will accelerate upon the occurrence of an underwritten public offering of at least $75 million of the Company’s common stock, the sale of all or substantially all of the Company’s assets or the merger or consolidation of the Company with another entity, and specific to the promissory notes issued in February 2014, will also accelerate under certain circumstances in the event that the security pledged by Shidler LP in support of the FHB Credit Facility is withdrawn, terminated or decreased prior to December 31, 2015. The promissory notes are unsecured obligations of the Operating Partnership and are subordinated to borrowings under the FHB Credit Facility and our indemnification obligations to Shidler LP in connection with its pledge in support of the FHB Credit Facility.

For the period from March 20, 2008 through June 30, 2014, interest payments on these promissory notes have been deferred with the exception of $0.3 million which was related to notes exchanged for shares of common stock in 2009. At June 30, 2014 and December 31, 2013, $11.4 million and $10.1 million, respectively, of accrued interest attributable to these promissory notes is included in the accompanying consolidated balance sheets.

10. Commitments and Contingencies

Minimum Future Ground Rents

We hold a long-term ground leasehold interest in our Waterfront Plaza property. The Waterfront Plaza ground lease expires December 31, 2060. The annual rental obligation has fixed increases at 5-year intervals until it resets on January 1, 2036, 2041, 2046, 2051, and 2056 to an amount equal to the greater of (i) 8.0% of the fair market value of the land and (ii) the ground rent payable for the prior period.

Contingencies

From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance, subject to deductibles and other customary limitations on recoveries. We believe that the ultimate settlement of these actions will not have a material adverse effect on our consolidated financial position and results of operations or cash flows.

18

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Concentration of Credit Risk

Our operating wholly-owned properties are located in Honolulu. Our operating properties owned in joint ventures are located in Honolulu, Phoenix and certain submarkets of San Diego and Los Angeles. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting the markets in which the tenants operate. As of June 30, 2014, no single tenant accounts for 10% or more of our total annualized base rents. We perform ongoing credit evaluations of our tenants for potential credit losses.

Financial instruments that subject us to credit risk consist primarily of cash, accounts receivable and deferred rents receivable. We maintain our cash and cash equivalents and restricted cash on deposit with what management believes are relatively stable financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to the maximum amount; and, to date, we have not experienced any losses on our invested cash. Restricted cash held by lenders is held by those lenders in accounts maintained at major financial institutions.

Conditional Asset Retirement Obligations

We record a liability for a conditional asset retirement obligation, defined as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement is conditional on a future event that may or may not be within a company’s control, when the fair value of the obligation can be reasonably estimated. Depending on the age of the construction, certain properties in our portfolio may contain non-friable asbestos. If these properties undergo major renovations or are demolished, certain environmental regulations are in place, which specify the manner in which the asbestos, if present, must be handled and disposed. Based on our evaluation of the physical condition and attributes of certain of our properties, we recorded conditional asset retirement obligations related to asbestos removal. As of June 30, 2014 and December 31, 2013, the liability in our consolidated balance sheets for conditional asset retirement obligations was $0.6 million and $0.7 million, respectively. The accretion expense for the three and six month periods ended June 30, 2014 and 2013 was not significant.

Waterfront Plaza Ground Lease

We are subject to a surrender clause under the Waterfront Plaza ground lease that provides the lessor with the right to require us, at our own expense, to raze and remove all improvements from the leased land, contingent on the lessor’s decision at the time the ground lease expires on December 31, 2060. Accordingly, as of June 30, 2014 and December 31, 2013, the liability in our consolidated balance sheets for this asset retirement obligation was $0.4 million for both periods. The accretion expense for the three and six month periods ended June 30, 2014 and 2013 was not significant.

Environmental Matters

We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our financial condition, results of operations, and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability other than our conditional asset retirement obligations that we believe would require additional disclosure or the recording of a loss contingency.

Capital Commitments

We are required by certain leases and loan agreements to complete tenant and building improvements. As of June 30, 2014, we are obligated to spend $2.7 million in capital expenditures and leasing costs through the remainder of 2014. We anticipate that our reserves, as well as other sources of liquidity, including existing cash on hand, our cash flows from operations, financing and investing activities will be sufficient to fund our capital expenditure obligations.

Tax Protection Arrangements

A sale of any of the Contributed Properties that would not provide continued tax deferral to POP Venture, LLC (“Venture”) is contractually restricted until March 2018, which is 10 years after the closing of the transaction related to such properties. In addition, we have agreed that, during such 10-year period, we will not prepay or defease any mortgage indebtedness of such properties, other than in connection with a concurrent refinancing with non-recourse mortgage debt of an equal or greater amount and subject to certain other restrictions. Furthermore, if any such sale or defeasance is foreseeable, we are required to notify

19

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Venture and to cooperate with it in considering strategies to defer or mitigate the recognition of gain under the Code by any of the equity interest holders of the recipient of the Operating Partnership units.

In June 2012, we completed the sale of our fee and leasehold interests in our First Insurance Center property, located in Honolulu, Hawaii, to an unaffiliated third party. As a result of the sale, certain contract parties claimed they were entitled to a make-whole cash payment under tax protection agreements relating to the property. During the third quarter of 2013, we held settlement discussions with certain claimants regarding these tax protection agreements and accrued $8.7 million for such liability as of December 31, 2013. In February 2014, we issued $8.3 million of subordinated promissory notes in settlement of the majority of such claims (see Note 9), and paid cash settlements totaling approximately $0.4 million in settlement of the remainder of such claims. Each party receiving a promissory note or cash payment released us from any other claims under the tax protection agreements arising out of the sale of the First Insurance Center property and the foreclosure of our Sorrento Technology Center property in January 2012, as applicable.

In May 2014, we entered into a Purchase and Sale Agreement to sell our fee and leasehold interest in our Clifford Center property, located in Honolulu, Hawaii, to an unaffiliated third party. The agreement was subsequently amended in July and August 2014. The completion of the sale transaction is scheduled to occur in the third quarter of 2014, subject to customary closing conditions, for aggregate consideration of $9.3 million, including the assumption of an existing loan encumbering the property amounting to $4.6 million as of June 30, 2014. We cannot be certain that we will be able to complete the sale of our Clifford Center property within that timeframe or at all. Even if the sale of the property is completed, we believe that no tax indemnity liability would arise under the tax protection agreements because the sale of the Clifford Center property under the agreed terms of the Purchase and Sale Agreement would result in a tax loss.

Indemnities

The mortgage debt that we maintain for our consolidated properties and unconsolidated joint venture properties is typically property-specific debt that is non-recourse to our Operating Partnership, except for customary recourse carve-outs for borrower misconduct and environmental liabilities. The recourse liability for borrower misconduct and environmental liabilities was guaranteed by James C. Reynolds. Our Operating Partnership has agreed to indemnify Mr. Reynolds to the extent of his guaranty liability. This debt strategy isolates mortgage liabilities in separate, stand-alone entities, allowing us to have only our property-specific equity investment at risk, except to the extent of the recourse carve-outs. In management’s judgment, it would be unlikely for us to incur any material liability under these indemnities that would have a material adverse effect on our financial condition, results of operations or cash flows.

11. Equity (Deficit) and Earnings (Loss) per Share

Total Equity (Deficit)

The changes in total equity (deficit) for the period from December 31, 2013 to June 30, 2014 are shown below (in thousands):

Pacific Office Properties Trust, Inc.

Non-controlling interest - Preferred

Non-controlling interest - Common

Total

Balance at December 31, 2013

$

(144,471

)

$

127,268

$

(67,329

)

$

(84,532

)

Net income (loss)

(1,492

)

1,136

(8,467

)

(8,823

)

Dividends and distributions

(875

)

(1,136

)

—

(2,011

)

Balance at June 30, 2014

$

(146,838

)

$

127,268

$

(75,796

)

$

(95,366

)

Stockholders’ Equity (Deficit)

Our Class A Common Stock (which is quoted in the OTCQB tier of the OTC Marketplace) and our Class B Common Stock are identical in all respects, except that in the event of liquidation the Class B Common Stock will not be entitled to any portion of our net assets, which would, if any, be allocated and distributed to the holders of the Class A Common Stock. Shares of our Class A Common Stock and Class B Common Stock vote together as a single class and each share is entitled to one vote on each matter to be voted upon by our stockholders. Dividends on the Class A Common Stock and Class B Common Stock are payable at the discretion of our Board of Directors.

20

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Our Senior Common Stock ranks senior to our Class A Common Stock and Class B Common Stock with respect to dividends and distribution of amounts upon liquidation. It has a $10.00 per share (plus accrued and unpaid dividends) liquidation preference. Subject to the preferential rights of any future series of preferred shares, holders of Senior Common Stock are entitled to receive, when and as declared by the Company’s Board of Directors, cumulative cash dividends in an amount per share equal to a minimum of $0.725 per share per annum, payable monthly. Dividends on the Senior Common Stock are cumulative and accrue to the extent not declared or paid by us. Should the dividend payable on the Class A Common Stock exceed the rate of $0.20 per share per annum, the Senior Common Stock dividend would increase by 25% of the amount by which the Class A Common Stock dividend exceeds $0.20 per share per annum. Holders of Senior Common Stock have the right to vote on all matters presented to stockholders as a single class with holders of the Class A Common Stock, the Class B Common Stock and the Company’s outstanding share of Proportionate Voting Preferred Stock (as discussed below). Each share of the Company’s Class A Common Stock, the Class B Common Stock and the Senior Common Stock is entitled to one vote on each matter to be voted upon by the Company’s stockholders. Shares of Senior Common Stock may be exchanged, at the option of the holder, for shares of Class A Common Stock after the fifth anniversary of the issuance of such shares of Senior Common Stock. The exchange ratio is to be calculated using a value for our Class A Common Stock based on the average of the trailing 30-day closing price of the Class A Common Stock on the date the shares are submitted for exchange, but in no event less than $1.00 per share, and a value for the Senior Common Stock of $10.00 per share. Unless full cumulative dividends on the Senior Common Stock have been paid for all past dividend periods, we may not repurchase or redeem any shares of Senior Common Stock (or Class A Common Stock) unless all outstanding shares of Senior Common Stock are simultaneously repurchased or redeemed. As of June 30, 2014 and December 31, 2013, we had a total of 2,410,839 shares of Senior Common Stock issued and outstanding. We terminated our continuous public offering of Senior Common Stock in February 2011 and do not expect to issue any additional shares of Senior Common Stock.

General Partnership Interest

The Company’s general partnership interest in the Operating Partnership is denominated in a number of Common Units equal to the number of shares of our Class A Common Stock and Class B Common Stock outstanding. Our general partnership interest includes the right to participate in distributions of the Operating Partnership to holders of Common Units in a percentage equal to the quotient obtained by dividing (a) the number of shares of our Class A Common Stock and Class B Common Stock outstanding by (b) the sum of shares of our Class A Common Stock and Class B Common Stock outstanding plus the number of shares of our Class A Common Stock for which the outstanding Common Units of the Operating Partnership may be redeemed. We also hold a number of Senior Common Units corresponding to the number of shares of Senior Common Stock outstanding, which entitle us to receive distributions from the Operating Partnership in an amount per Senior Common Unit equal to the per share dividend payable to holders of our Senior Common Stock.

Non-controlling Interests

Non-controlling interests include the interests in the Operating Partnership that are not owned by the Company, which amounted to all of the Preferred Units and 78.16% of the Common Units outstanding as of June 30, 2014. During the three and six months ended June 30, 2014 and 2013, no Common Units or Preferred Units were redeemed or issued. As of June 30, 2014, 46,698,532 shares of our Class A Common Stock were reserved for issuance upon redemption of outstanding Common Units and Preferred Units.

The Common Units issued upon the completion of our formation transactions on March 19, 2008 are designated as Class B Common Units, which are redeemable by the holder on a one-for-one basis for shares of Class A Common Stock or a new class of Common Units, designated as Class C Common Units, which have no redemption rights, as elected by a majority of our independent directors. All other outstanding Common Units are designated as Class A Common Units, which are redeemable by the holders on a one-for-one basis for shares of Class A Common Stock or cash, as elected by a majority of our independent directors. Each Preferred Unit is convertible by the holder into 7.1717 Class B Common Units, but not before the date we consummate an underwritten public offering (of at least $75 million) of our common stock. Class B Common Units received upon conversion of Preferred Units will not be redeemable by the holder as described above for a period of one year after the date of conversion from Preferred Units to Class B Common Units.

The Preferred Units have fixed rights to annual distributions at an annual rate of 2% of their liquidation preference of $25 per Preferred Unit and priority over Common Units in the event of a liquidation of the Operating Partnership. At June 30, 2014, the cumulative unpaid distributions attributable to Preferred Units were $8.0 million. We anticipate continuing to accrue these distributions through the remainder of 2014.

21

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Common Units of all classes and Preferred Units of the Operating Partnership do not have any right to vote on any matters presented to our stockholders. We have outstanding one share of Proportionate Voting Preferred Stock, which is held by Pacific Office Holding, Inc., a corporation owned by Mr. Shidler and certain of our current and former executive officers and other affiliates. The Proportionate Voting Preferred Stock has no dividend rights and minimal rights to distributions in the event of liquidation, but it entitles its holder to vote on all matters for which the holders of Class A Common Stock are entitled to vote. The Proportionate Voting Preferred Stock entitles its holder to cast a number of votes equal to the total number of shares of Class A Common Stock issuable upon redemption for shares of the Class B Common Units and Preferred Units issued in connection with the completion of our formation transactions on March 19, 2008. This number will decrease to the extent that these Class B Common Units are redeemed for shares of Class A Common Stock in the future, but will not increase in the event of future unit issuances by the Operating Partnership. As of June 30, 2014, that share of Proportionate Voting Preferred Stock represented 88% of our voting power. Pacific Office Holding, Inc. has agreed to cast its Proportionate Voting Preferred Stock votes on any matter in direct proportion to votes that are cast by limited partners of our Operating Partnership holding the Class B Common Units and Preferred Units issued in the formation transactions.

As of June 30, 2014, Venture owned 46,173,693 shares of our Class A Common Stock assuming that all Operating Partnership units were fully redeemed for shares on such date, notwithstanding the restrictions on redemption noted above. Assuming the immediate redemption of all the Operating Partnership units held by Venture, Venture and its related parties control 91.5% of the total voting power in the Company.

Earnings (Loss) per Share

We present both basic and diluted earnings per share (“EPS”). Basic EPS is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of Class A Common Stock and Class B Common Stock outstanding during each period. Diluted EPS is computed by dividing net income or loss attributable to common stockholders for the period by the number of shares of Class A Common Stock and Class B Common Stock that would have been outstanding assuming the issuance of shares of Class A Common Stock for all potentially dilutive shares of Class A Common Stock outstanding during each period. Net income or loss in the Operating Partnership is allocated in accordance with the Partnership Agreement among our general partner and limited partner Common Unit holders in accordance with their weighted average ownership percentages in the Operating Partnership of 21.84% and 78.16%, respectively, as of June 30, 2014, after taking into consideration the priority distributions allocated to the limited partner preferred unit holders in the Operating Partnership. The following is the basic and diluted loss per share (in thousands, except share and per share amounts):

For the three months ended June 30,

For the six months ended June 30,

2014

2013

2014

2013

Net loss attributable to common stockholders - basic and diluted(1)

$

(1,340

)

$

(1,121

)

$

(2,367

)

$

(1,882

)

Weighted average number of common shares

3,941,242

3,941,242

3,941,242

3,941,242

Potentially dilutive common shares(2)

—

—

—

—

Weighted average number of common shares outstanding - basic and diluted

3,941,242

3,941,242

3,941,242

3,941,242

Net loss per common share - basic and diluted

$

(0.34

)

$

(0.28

)

$

(0.60

)

$

(0.48

)

(1)

For the three and six months ended June 30, 2014 and 2013, net loss attributable to common stockholders includes $0.6 million and $1.1 million of priority allocation to Preferred Unit holders, respectively, which is included in non-controlling interests in the consolidated statements of operations. The Company continues to accrue the distributions but does not anticipate paying the distributions in the near term. See below for additional detail.

(2)

For each of the three and six month periods ended June 30, 2014 and 2013, 14,101,004 shares of Class A Common Stock which may be issued upon redemption of Common Units, 32,597,528 shares of Class A Common Stock which may be issued upon conversion of Preferred Units and subsequent redemption, and 2,410,839 shares of Senior Common Stock were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to our net loss position;

Refer to “Non-controlling Interests” and “Stockholders’ Equity (Deficit)” in this footnote for the redemption and conversion terms and conditions of the Preferred Units and Senior Common Stock.

22

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

Dividends and Distributions

Our board of directors authorized daily dividends on the Senior Common Stock, payable to holders of record of the Senior Common Stock as of the close of business on each day of the period commencing April 22, 2010 through April 30, 2013, in an amount equal to the stated annualized rate of 7.25% of the original issue price of $10.00 per share. Dividends declared for each month during such periods were paid on or about the 15th day of the following month. As part of ongoing cost-cutting measures and in light of our focus on the preservation of cash, our board of directors authorized dividends on the Senior Common Stock for the period commencing May 1, 2013 through August 31, 2014 at half the stated annualized rate. The difference between the stated dividend and the paid dividend, which will accrue until paid in full, amounted to $1.1 million as of June 30, 2014.

Amounts accumulated for distribution to stockholders and Operating Partnership unit holders are invested primarily in interest-bearing accounts which are consistent with our intention to maintain our qualification as a REIT. At June 30, 2014, the cumulative unpaid distributions attributable to Preferred Units were $8.0 million, which we do not anticipate paying in 2014.

Dividends declared and accrued on the Senior Common Stock are included in “Cumulative deficit” in the accompanying consolidated balance sheets. Accrued distributions on Preferred Units are included in “Non-controlling interests” in the accompanying consolidated balance sheets.

12. Disposition Activity

Disposition of Unconsolidated Joint Venture Investments

On January 18, 2013, the lender on the SoCal Portfolio properties (Via Frontera Business Park, Savi Tech Center, Yorba Linda Business Park, South Coast Executive Center and Gateway Corporate Center), located in Los Angeles, Orange and San Diego counties of southern California, foreclosed on the loan and took back the properties. Our investment in the unconsolidated joint venture that owned these properties was written off as of December 31, 2011.

On January 31, 2013, one of the buildings in the Palomar Heights Plaza property, located in San Diego, California, was sold in a foreclosure sale. The sale of the building, which was previously owned by one of our unconsolidated joint ventures, resulted in a loss to the joint venture from the foreclosure transaction. Our share of the loss is included in “Equity in net earnings of unconsolidated joint ventures” on the consolidated statement of operations for the six months ended June 30, 2013.

On February 15, 2013, the Bank of Hawaii Waikiki Center property, located in Honolulu, Hawaii, was sold to an unaffiliated third party. Net proceeds from the sale of the property, which was previously owned by one of our unconsolidated joint ventures, were used to repay the mortgage note payable and other transaction related expenses, and then distributed to the members of the joint venture, including us. Final cash distributions were made to the members of the joint venture in March 2014 after dissolution and related costs were paid.

Discontinued Operations

On May 27, 2014, we entered into a Purchase and Sale Agreement to sell our fee and leasehold interest in our Clifford Center property, located in Honolulu, Hawaii, to an unaffiliated third party. The agreement was subsequently amended in July and August 2014. The completion of the sale transaction is scheduled to occur in the third quarter of 2014, subject to customary closing conditions for aggregate consideration of $9.3 million, including the assumption of an existing loan encumbering the property amounting to $4.6 million as of June 30, 2014. We cannot be certain that we will be able to complete the sale of our Clifford Center property within that timeframe or at all. As of June 30, 2014, the Clifford Center property is classified as held for sale. Accordingly, the operating results of the Clifford Center property for the three and six month periods ended June 30, 2014 and 2013 are included in “Discontinued operations” in the accompanying consolidated statements of operations.

23

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the operating results of the Clifford Center property that comprise loss from discontinued operations for the three and six months ended June 30, 2014 and 2013 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

2014

2013

2014

2013

Revenue

451

346

889

727

Expenses

656

515

1,088

951

Loss from discontinued operations

(205

)

(169

)

(199

)

(224

)

13. Related Party Transactions

We are externally advised by Shidler Pacific Advisors, an entity that is owned and controlled by Mr. Shidler. Shidler Pacific Advisors is responsible for the day to day operations and management of the Company, including management of our wholly-owned properties. For its services, Shidler Pacific Advisors is entitled to a corporate management fee of $0.2 million per quarter, which is reflected in “General and administrative” expenses in the accompanying consolidated statements of operations for the three and six month periods ended June 30, 2014 and 2013, and property management fees of 2.5% to 4.5% of the rental cash receipts collected by the wholly-owned properties, and related fees; however, such property management and related fees are required to be consistent with prevailing market rates for similar services provided on an arms-length basis in the area in which the subject property is located.

The fees that we paid Shidler Pacific Advisors for services relating to property management, corporate management, construction management and other services are summarized in the table below (in thousands):

For the three months ended June 30,

For the six months ended June 30,

2014

2013

2014

2013

Property management

$

492

$

442

$

980

$

938

Corporate management

213

213

426

426

Construction management and other

48

86

75

94

Total

$

753

$

741

$

1,481

$

1,458

Shidler Pacific Advisors leases space from us at certain of our wholly-owned properties for building management and corporate offices. The rents from these leases totaled $0.1 million for each of the three month periods ended June 30, 2014 and 2013, and $0.3 million for each of the six month periods ended June 30, 2014 and 2013. At June 30, 2014, we have $0.3 million owed to Shidler Pacific Advisors included in “Accounts payable and other liabilities” in the accompanying consolidated balance sheets.

During each of the three month periods ended June 30, 2014 and 2013, we recognized $0.1 million in interest to Shidler LP for the annual fee related to its security pledge for the FHB Credit Facility. During each of the six month periods ended June 30, 2014 and 2013, we recognized $0.2 million in interest to Shidler LP for this annual fee. See Note 8 for more discussion on the FHB Credit Facility, including the security pledge made by Shidler LP.

The Operating Partnership has agreed to indemnify James C. Reynolds with respect to all of his obligations under certain guaranties provided by Mr. Reynolds to lenders of indebtedness encumbering the Contributed Properties and certain additional properties acquired after the completion of our formation transactions. Mr. Reynolds is the beneficial owner of 12% of our Class A Common Stock. See Note 10 for additional discussion on these indemnities.

At June 30, 2014 and December 31, 2013, $11.4 million and $10.1 million, respectively, of accrued interest attributable to unsecured notes payable to current and former related parties is included in the accompanying consolidated balance sheets. See Note 9 for a detailed discussion on these unsecured notes payable.

14. Fair Value of Financial Instruments

We are required to disclose fair value information about all financial instruments, whether or not recognized in the consolidated balance sheet, for which it is practicable to estimate fair value. We measure and disclose the estimated fair value of financial assets

24

Pacific Office Properties Trust, Inc.

Notes to Consolidated Financial Statements

and liabilities utilizing a fair value hierarchy that distinguishes between data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels as follows:

Level 2 - using quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals.

Level 3 - using unobservable inputs that reflect an entity’s own assumptions that market participants would use when pricing of the asset or liability, to the extent observable inputs are not available.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The fair market value of debt is determined using the trading price of public debt or a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile, including the Company’s non-performance risk (Level 3). Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments. We calculate the fair value of our mortgage and other loans by using available market information and discounted cash flows analyses based on borrowing rates we believe we could obtain with similar terms and maturities. Because the valuations of our financial instruments are based on these types of estimates, the actual fair value of our financial instruments may differ materially if our estimates do not prove to be accurate. Additionally, the use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The fair value of the unsecured related party notes could not be estimated due to their related party nature. The carrying value of the revolving line of credit borrowings approximates its fair value since the borrowings bear interest at a variable market rate.

At June 30, 2014, the carrying value (excluding accrued interest) and estimated fair value of the mortgage and other loans (excluding the loans related to our Clifford Center property classified under “Mortgage and other liabilities of real estate assets held for sale” in the accompanying consolidated balance sheets) were $290.7 million and $287.4 million, respectively. At December 31, 2013, the carrying value (excluding accrued interest) and estimated fair value of the mortgage and other loans were $297.4 million and $292.5 million, respectively.

The following discussion should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including the consolidated financial statements and the related notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q. Historical results set forth in the consolidated financial statements included in Item 1 and this Section should not be taken as indicative of our future operations.

Note Regarding Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which include information relating to future events, future financial performance, strategies, expectations, risks and uncertainties. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. These forward-looking statements include, without limitation, statements regarding: projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements regarding strategic transactions such as mergers or acquisitions or a possible dissolution of the Company; and statements of management’s goals and objectives and other similar expressions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “believe,” “assume,” “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “strive” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Certain matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements. The risks and uncertainties inherent in such statements may cause actual future events or results to differ materially and adversely from those described in the forward-looking statements.

We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. These factors include the risks and uncertainties described in “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013. You should bear this in mind as you consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.

Overview

We are an externally advised REIT that owns and operates primarily institutional-quality office properties in Hawaii. As of June 30, 2014, we owned four office properties comprising 1.2 million rentable square feet and were partners with third parties in four joint ventures (of which we have managing ownership interests in one), holding six office properties comprising 12 buildings and 1.1 million rentable square feet (“Property Portfolio”). One of our joint ventures also owns a sports club associated with our City Square property in Phoenix, Arizona. Our ownership interest percentages in these joint ventures range from 5.0% to 32.2%. As of June 30, 2014, our Property Portfolio included office buildings in Honolulu, Phoenix and certain submarkets of San Diego and Los Angeles.

Our advisor is Shidler Pacific Advisors, LLC (“Shidler Pacific Advisors”), an entity that is owned and controlled by Jay H. Shidler, our Chairman of the Board. Lawrence J. Taff, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, also serves as President of Shidler Pacific Advisors. Shidler Pacific Advisors is responsible for the day-to-day operation and management of the Company, including management of our wholly-owned properties.

We maintain a website at www.pacificofficeproperties.com. The information on or accessible through our website is not part of this Quarterly Report on Form 10-Q. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such reports are available without charge on our website or upon request to us. In addition, our Code of Business Conduct and Ethics is available without charge on our website or upon request to us. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers will be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors.

26

Pacific Office Properties Trust, Inc.

Critical Accounting Policies

This discussion and analysis of the historical financial condition and results of operations is based upon the accompanying consolidated financial statements which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. These estimates have been evaluated on an ongoing basis, based upon information currently available and on various assumptions that management believes are reasonable as of the date hereof. In addition, other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of the results of operations and financial conditions to those of other companies.

In addition, we identified certain critical accounting policies that affect our more significant estimates and assumptions used in preparing our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2013. We have not made any material changes to those policies during the period covered by this Quarterly Report on Form 10-Q.

Results of Operations

Overview

As of June 30, 2014, the Property Portfolio (including our joint venture properties) was 76.4% leased under a total of 482 leases. As of that date, 6.7% of our Property Portfolio leased square footage was scheduled to expire during 2014 and another 16.5% of our Property Portfolio leased square footage was scheduled to expire during 2015. We receive income primarily from rental revenue (including tenant reimbursements) from our office properties and, to a lesser extent, from our parking revenues. Our office properties are typically leased to tenants with good credit for terms ranging from two to 20 years.

As of June 30, 2014, our California portfolio attributable to our unconsolidated joint ventures was 79.0% leased, with approximately 61,600 square feet available.

As of June 30, 2014, our Phoenix portfolio attributable to our unconsolidated joint ventures was 60.8% leased, with approximately 283,500 square feet available.

27

Pacific Office Properties Trust, Inc.

Comparison of the three months ended June 30, 2014 to

the three months ended June 30, 2013 (in thousands)

Total

2014

2013

$ Change

% Change

Revenue:

Rental

$

5,039

$

5,209

$

(170

)

(3.3

)%

Tenant reimbursements

4,317

4,113

204

5.0

%

Parking

1,429

1,416

13

0.9

%

Other

85

144

(59

)

(41.0

)%

Total revenue

10,870

10,882

(12

)

(0.1

)%

Expenses:

Rental property operating

6,543

6,607

(64

)

(1.0

)%

General and administrative

453

512

(59

)

(11.5

)%

Depreciation and amortization

2,768

2,675

93

3.5

%

Interest

5,079

4,943

136

2.8

%

Total expenses

14,843

14,737

106

0.7

%

Loss from continuing operations before equity in net loss of unconsolidated joint ventures

(3,973

)

(3,855

)

(118

)

(3.1

)%

Equity in net loss of unconsolidated joint ventures

(950

)

(103

)

(847

)

822.3

%

Loss from continuing operations

(4,923

)

(3,958

)

(965

)

24.4

%

Loss from discontinued operations

(205

)

(169

)

(36

)

21.3

%

Net loss

$

(5,128

)

$

(4,127

)

$

(1,001

)

(24.3

)%

Revenues

Rental revenue. Total rental revenue decreased by $0.2 million, or 3.3%, primarily due to a decrease in rental revenues at Waterfront Plaza as a result of write offs of deferred rent in the current year period related to a tenant who vacated its leased premises.

Tenant reimbursements. Total tenant reimbursements increased by $0.2 million, or 5.0%, primarily due to increased tenant recoveries for common area maintenance expenses at Davies Pacific Center ($0.1 million) and Waterfront Plaza ($0.1 million).

Parking revenue. Total parking revenue increased by an insignificant amount compared to the prior year period.

Other revenue. Total other revenue decreased by $0.1 million, or 41.0%, primarily due to the receipt of a restoration fee in the prior year period from a Waterfront Plaza tenant that did not recur in the current year period.

Expenses

Rental property operating expenses. Total rental property operating expenses decreased by $0.1 million, or 1.0%, primarily due to a decrease in vacant office repairs at Waterfront Plaza compared to the prior year period.

General and administrative expense. Total general and administrative expenses decreased by $0.1 million, or 11.5%, primarily due to a decrease in professional fees compared to the prior year period.

Depreciation and amortization expense. Total depreciation and amortization expense increased by $0.1 million, or 3.5%, primarily due to an increase in depreciation expenses of Waterfront Plaza due to a higher asset depreciation basis as a result of capital improvements to the property.

28

Pacific Office Properties Trust, Inc.

Interest expense. Total interest expense increased by $0.1 million, or 2.8%, primarily due to an increase in interest attributable to additional unsecured notes payable to current and former related parties in the current year period.

Equity in net loss of unconsolidated joint ventures

Equity in net loss of unconsolidated joint ventures increased by $0.8 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The increase is primarily attributable to the write-off of our investment in the POP San Diego joint venture in the current year period due to the uncertainty of its recoverability.

Loss from discontinued operations

For the three month periods ended June 30, 2014 and 2013, discontinued operations reflects the net results of operations of the Clifford Center property, which met the criteria to be classified as an asset held for sale as of June 30, 2014. Loss from discontinued operations increased primarily due to the non-cash impairment charge recorded in the current year period on the Clifford Center property, partially offset by increased tenant recoveries for common area maintenance expenses at Clifford Center in the current year period compared to the prior year period.

Rental revenue. Total rental revenue decreased by $0.4 million, or 3.5%, primarily due to a decrease in rental revenues at Pan Am Building as a result of a negotiated lease incentive for a tenant ($0.2 million) and at Waterfront Plaza as a result of write offs of deferred rent in the current year period related to a tenant who vacated its premises ($0.2 million).

Tenant reimbursements. Total tenant reimbursements increased by $0.3 million, or 4.2%, primarily due to increased tenant recoveries for common area maintenance expenses at Davies Pacific Center ($0.2 million) and an increase in tenant reimbursements of electricity costs at Davies Pacific Center ($0.1 million).

29

Pacific Office Properties Trust, Inc.

Parking revenue. Total parking revenue increased by $0.1 million, or 3.1%, primarily due to an increase in parking revenue at Waterfront Plaza.

Other revenue. Total other revenue decreased by an insignificant amount compared to the prior year period.

General and administrative expense. Total general and administrative expenses decreased by $0.1 million, or 9.9%, primarily due to a decrease in professional fees compared to the prior year period.

Depreciation and amortization expense. Total depreciation and amortization expense increased by $0.2 million, or 3.2%, primarily due to an increase in depreciation expenses of Waterfront Plaza due to a higher asset depreciation basis as a result of capital improvements to the property.

Interest expense. Total interest expense increased by $0.2 million, or 2.3%, primarily due to an increase in interest attributable to additional unsecured notes payable to current and former related parties in the current year period.

Equity in net (loss) earnings of unconsolidated joint ventures

Equity in net earnings of unconsolidated joint ventures decreased by $2.0 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The decrease is attributable to a decrease in earnings from our joint venture ($1.3 million) which sold the Bank of Hawaii Waikiki Center property in February 2013 and an increase in losses ($0.7 million) from our POP San Diego joint venture due to the write-off of our investment in the POP San Diego joint venture in the current year period due to the uncertainty of its recoverability.

Loss from discontinued operations

For the six month periods ended June 30, 2014 and 2013, discontinued operations reflects the net results of operations of the Clifford Center property, which met the criteria to be classified as an asset held for sale as of June 30, 2014. Loss from discontinued operations decreased primarily due to increased tenant recoveries for common area maintenance expenses at Clifford Center in the current year period compared to the prior year period, partially offset by a non-cash impairment charge recorded in the current year period on the Clifford Center property.

Cash Flows

Net cash provided by operating activities for the Company for the six months ended June 30, 2014 was $0.2 million compared to net cash used in operating activities of $0.2 million for the six months ended June 30, 2013. The increase was primarily the result of additional funds released from our restricted reserve cash accounts in the current year period.

Net cash used in investing activities for the Company for the six months ended June 30, 2014 was $3.7 million compared to net cash used in investing activities of $1.0 million for the six months ended June 30, 2013. The increase was primarily the result of an increase in capital expenditures ($1.0 million) from the prior year period, a decrease in distributions from unconsolidated joint ventures primarily related to distributions received from the sale of the Bank of Hawaii Center joint venture property in February 2013 ($1.8 million) and interim financing provided to one of our unconsolidated joint ventures ($0.2 million) during the six months ended June 30, 2014, partially offset by a decrease in leasing commission payments ($0.1 million) and a decrease in restricted cash used for capital expenditures ($0.2 million).

Net cash used in financing activities was $0.7 million for the six months ended June 30, 2014 compared to net cash used in financing activities of $1.1 million during the six months ended June 30, 2013. The decrease was primarily due to a decrease in Senior Common Stock dividends paid during the six months ended June 30, 2014.

30

Pacific Office Properties Trust, Inc.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income. As discussed further below, however, we did not declare dividends on our Class A Common Stock during fiscal 2013 and 2012, and we do not currently expect to declare dividends on our Class A Common Stock during fiscal 2014.

Our business is capital intensive and our ability to maintain our operations depends on our cash flow from operations and our ability to raise additional capital on acceptable terms. Our primary focus is to preserve and generate cash.

We expect to meet our short-term liquidity and capital requirements primarily through existing cash on hand, net cash provided by rental activities, the contribution of existing wholly-owned assets to joint ventures and/or asset dispositions. We expect to meet our long-term capital requirements through net cash provided by operating activities, borrowings under our revolving credit facility (if available), refinancing of existing debt or through other available investment and financing activities, including the contribution of existing wholly-owned assets to joint ventures (partial sell-down of equity interests in wholly-owned assets), asset dispositions and/or additional secured or unsecured debt financings. In February 2013, we completed the sale of our Bank of Hawaii Waikiki Center joint venture property to an unrelated third party. In May 2014, we entered into a Purchase and Sale Agreement to sell our fee and leasehold interest in our Clifford Center property, located in Honolulu, Hawaii. The completion of the sale transaction is scheduled to occur in the third quarter of 2014, subject to customary closing conditions. We cannot be certain that we will be able to complete the sale of our Clifford Center property within that timeframe or at all. We may also consider strategic alternatives, including a sale, merger, other business combination or recapitalization, of the Company.

While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed.

Actual and Potential Sources of Liquidity

Listed below are our actual and potential sources of liquidity in 2014, which we currently believe will be sufficient to fund our short-term liquidity needs:

These sources are essential to our short-term liquidity and financial position, and we cannot assure you that we will be able to successfully access them. If we are unable to generate adequate cash from these sources, we will have liquidity-related problems and may be exposed to significant risks. For a further discussion of such risks, see Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013.

Unrestricted and restricted cash on hand

As of June 30, 2014, we had $11.2 million in unrestricted cash and cash equivalents. In addition, we had restricted cash balances of $3.8 million. A summary of our restricted cash reserves is as follows (in thousands):

June 30, 2014

Tax, insurance and other working capital reserves

$

1,514

Leasing and capital expenditure reserves

440

Ground lease reserves

1,527

Collateral accounts

334

Total restricted cash

$

3,815

31

Pacific Office Properties Trust, Inc.

The ground lease, leasing and capital expenditure, tax, insurance and other working capital reserves are held in restricted accounts by our lenders in accordance with the terms of our mortgage loans. These restricted cash accounts are expected to fund (1) anticipated leasing expenditures (primarily commissions and tenant improvement costs) for existing and prospective tenants, (2) non-recurring discretionary capital expenditures, (3) payments for properties subject to ground leases, and (4) property taxes and insurance. The collateral accounts are held by our lenders under our other obligations.

Net cash flow generated from operations

Our cash flows from operations depend significantly on market rents and the ability of our tenants to make rental payments. While we believe the diversity and high credit quality of our tenants help mitigate the risk of a significant interruption of our cash flows from operations, the challenging economic conditions that we are continuing to experience, the potential for an increase in interest rates, or the possibility for a downturn or return to recessionary conditions could adversely impact our operating cash flows. Competition to attract and retain high credit-quality tenants remains intense. At the same time, a significant number of our leases at our properties are scheduled to expire over the next several years, and the capital requirements necessary to maintain our current occupancy levels, including payment of leasing commissions, tenant concessions, and anticipated leasing expenditures, could increase. As such, we will continue to closely monitor our tenant renewals, rental rates, competitive market conditions and our cash flows.

We are currently partners with third parties in four joint ventures, including two joint ventures into which we contributed our Pacific Business News Building and City Square properties in the second quarter of 2011. In the near term or longer term, we may seek to raise capital by contributing one or more of our existing wholly-owned assets to a joint venture with a third party. Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved. Our ability to successfully identify, negotiate and close joint venture transactions on acceptable terms or at all is highly uncertain.

Asset dispositions

In the near term or longer term, we may seek to raise additional capital by selling some or all of our existing wholly-owned assets, but our ability to do so on acceptable terms or at all is highly uncertain. Moreover, a sale of any of the properties contributed by POP Venture, LLC, or Venture, in connection with our formation transactions in March 2008 that would not provide continued tax deferral to Venture is contractually restricted for ten years after the closing of the transactions related to such properties. All of our wholly-owned properties continue to be subject to these restrictions. These restrictions on the sale of such properties may prevent us from selling the properties or may adversely impact the terms available to us upon a disposition. In addition, we have agreed that, during such ten-year period, we will not prepay or defease any mortgage indebtedness of such properties, other than in connection with a concurrent refinancing with non-recourse mortgage debt of an equal or greater amount and subject to certain other restrictions. Furthermore, if any such sale or defeasance is foreseeable, we are required to notify Venture and to cooperate with it in considering strategies to defer or mitigate the recognition of gain under the Code. These contractual obligations may limit our future operating flexibility and compel us to take actions or enter into transactions that we otherwise would not undertake. If we fail to comply with any of these requirements, we may be liable for a make-whole cash payment to Venture, the cost of which could be material and could adversely affect our liquidity.

As a result of the sale of our First Insurance Center property in June 2012, certain contract parties holding ownership interests in the contributor of First Insurance claimed they were entitled to a make-whole cash payment under tax protection agreements relating to the property. In February 2014, we issued subordinated promissory notes in the aggregate amount of $8.3 million in settlement of the majority of such claims, and paid cash settlements totaling approximately $0.4 million in settlement of the remainder of such claims. Each party receiving a promissory note or cash payment released us from any other claims under the tax protection agreements arising out of the sale of the First Insurance Center property and the foreclosure of our Sorrento Technology Center property in January 2012, as applicable. See “Indebtedness - Subordinated Promissory Notes” below for additional information regarding the terms of these promissory notes.

In May 2014, we entered into a Purchase and Sale Agreement to sell our fee and leasehold interest in our Clifford Center property, located in Honolulu, Hawaii, to an unaffiliated third party. The agreement was subsequently amended in July and August 2014. The completion of the sale transaction is scheduled to occur in the third quarter of 2014, subject to customary closing conditions, for aggregate consideration of $9.3 million, including the assumption of an existing loan encumbering the property amounting to $4.6 million as of June 30, 2014. We cannot be certain that we will be able to complete the sale of our Clifford Center property within that timeframe or at all. Even if the sale of the property is completed, we believe that no tax indemnity

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Pacific Office Properties Trust, Inc.

liability would arise under the tax protection agreements because the sale of the Clifford Center property under the agreed terms of the Purchase and Sale Agreement would result in a tax loss.

Actual and Potential Uses of Liquidity

The following are the actual and potential uses of our cash in 2014. There may be other uses of our cash that are unexpected (and that are not identified below):

•

Property operating and corporate expenses;

•

Capital expenditures (including building and tenant improvements and leasing commissions);

•

Debt service and financing costs; and/or

•

Dividends to stockholders and distributions to limited partners of our Operating Partnership.

Property operating and corporate expenses

We are focused on ensuring our properties are operating as efficiently as possible. We have taken steps to identify, and continue to seek, opportunities to reduce discretionary operating costs wherever possible and at the same time maintaining the quality of our buildings and the integrity of our management services. We have no employees and rely upon our advisor to provide substantially all of our day-to-day management. We believe that Shidler Pacific Advisors can provide adequate personnel resources, at lower cost to us, for our current and prospective business.

Capital expenditures (including building and tenant improvements and leasing commissions)

Capital expenditures fluctuate in any given period, subject to the nature, extent and timing of improvements required to maintain our properties. Leasing costs also fluctuate in any given period, depending upon such factors as the type of property, the term of the lease, the type of lease and overall market conditions. Our costs for capital expenditures and leasing fall into two categories: (1) amounts that we are contractually obligated to spend and (2) discretionary amounts. As of June 30, 2014, we were obligated to spend $2.7 million in capital expenditures and leasing costs through the remainder of 2014.

Debt service and financing costs

As of June 30, 2014, our total consolidated debt (which includes our mortgage and other loans with a carrying value of $290.7 million, our mortgage loans of our assets held for sale with a carrying value of $6.5 million and our unsecured promissory notes with a carrying value of $29.4 million) was $326.6 million, with a weighted average interest rate of 5.74% and a weighted average remaining term of 2.14 years. Our Clifford Center mortgage loan with an outstanding principal amount of $2.0 million as of June 30, 2014 is scheduled to mature on August 15, 2014. We intend to work with the lender on extending the maturity of this loan and to repay it upon closing of the proposed sale of this property, but there can be no assurance that we will be successful in doing so. See “Indebtedness” below for additional information with respect to our consolidated debt.

In May 2013, we agreed to provide short-term financing in the total amount of $0.5 million to one of our unconsolidated joint ventures. As of June 30, 2014, we had funded $0.4 million of this amount. This loan bears interest at the annual compounded rate of 12% and originally was scheduled to mature at the earlier of April 30, 2014 or the sale or disposition of one of the properties included in the portfolio of the joint venture. In April 2014, we agreed to extend the maturity date of the loan from April 30, 2014 to the earlier of September 1, 2014 or the full repayment or discharge of the senior loans secured by the joint venture’s properties.

Dividends to stockholders and distributions to limited partners of our Operating Partnership

Because we conduct substantially all of our operations through our Operating Partnership, our ability to pay dividends depends almost entirely on distributions received on our interests in our Operating Partnership, the payment of which depends in turn on our ability to operate profitably and generate cash flow from our operations. Our ability to pay dividends to holders of our Class A Common Stock depends on our Operating Partnership’s ability first to satisfy its obligations to its creditors and preferred unitholders (including us with respect to the outstanding Senior Common Units of our Operating Partnership, and then to the holder of the outstanding Preferred Units of our Operating Partnership) and then to make distributions to us with respect to our general partnership interest. Our Operating Partnership may not make distributions to the holders of its outstanding Common Units (including us with respect to our general partnership interest) unless full cumulative distributions have been paid on its outstanding Senior Common Units and Preferred Units, and we may not pay dividends on our Class A Common Stock unless full cumulative dividends have been paid on our outstanding Senior Common Stock.

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Pacific Office Properties Trust, Inc.

We did not declare a dividend on our Class A Common Stock during 2013, and do not currently expect to declare a dividend on our Class A Common Stock in 2014. Furthermore, our Operating Partnership did not pay a distribution with respect to its outstanding Preferred Units or Common Units during 2013, and does not expect to do so for 2014. As noted above, unless full cumulative distributions have been paid on the outstanding Senior Common Units and Preferred Units, our Operating Partnership may not pay a distribution on its outstanding Common Units (including us with respect to our general partnership interest), which effectively means that we will be unable to declare dividends on our Class A Common Stock unless and until all cumulative dividends and distributions have been paid with respect to the Senior Common Stock and the Preferred Units.

Our board of directors authorized daily dividends on the Senior Common Stock, payable to holders of record of the Senior Common Stock as of the close of business on each day of the period commencing April 22, 2010 through April 30, 2013, in an amount equal to the stated annualized rate of 7.25% of the original issue price of $10.00 per share. Dividends declared for each month during such periods were paid on or about the 15th day of the following month.

As part of ongoing cost-cutting measures and in light of our focus on the preservation of cash, our board of directors has authorized dividends on the Senior Common Stock for the period commencing May 1, 2013 through August 31, 2014 at half the stated annualized rate. The difference between the stated dividend and the paid dividend will accrue until paid in full. We believe that these cost-cutting measures are in the best interests of the Company and its stockholders as they preserve a greater amount of our cash in order to fund required leasing and capital improvements for our properties with the goal of maximizing the value of our properties.

Amounts accumulated for distribution to stockholders and Operating Partnership unitholders are invested primarily in interest-bearing accounts which are consistent with our intention to maintain our qualification as a REIT. At June 30, 2014, the cumulative unpaid distributions attributable to Preferred Units were $8.0 million, which we do not anticipate to pay in 2014.

We cannot provide any assurance as to when, or if, we will pay the accrued dividends on the Senior Common Stock or resume the payment of dividends at the full stated annualized rate, or if we will continue to pay dividends on the Senior Common Stock at half the stated annualized rate or at all. Any dividends or other distributions we pay in the future will depend upon our legal and contractual restrictions, including the provisions of the Senior Common Stock, as well as actual results of operations, economic conditions, debt service requirements and other factors. Our actual results of operations will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For a further discussion of such risks, see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.

Indebtedness

Mortgage and Other Loans

The following table sets forth information relating to the material borrowings with respect to our properties, including our property classified as held for sale, and our revolving line of credit as of June 30, 2014. Unless otherwise indicated in the footnotes to the table, each loan requires monthly payments of interest only and balloon payments at maturity, and all dollars are reported in thousands:

34

Pacific Office Properties Trust, Inc.

Property

Amount

Interest Rate

Maturity Date

Principal Balance Due at Maturity Date

Prepayment/ Defeasance

Clifford Center (held for sale)

$

1,959

4.375%

8/15/2014

$

1,896

(1)

Clifford Center Land (held for sale)

4,591

4.00%

2/17/2017

4,255

(2)

Pan Am Building

60,000

6.17%

8/11/2016

60,000

(3)

Waterfront Plaza

100,000

6.37%

9/11/2016

100,000

(4)

Waterfront Plaza

11,000

6.37%

9/11/2016

11,000

(5)

Davies Pacific Center

95,000

5.86%

11/11/2016

95,000

(6)

Subtotal

272,550

Revolving line of credit(7)

25,000

1.10%

12/31/2015

25,000

Outstanding principal balance

297,550

Less: Unamortized discount, net

(332

)

Mortgage and other loans, net

$

297,218

(1)

Loan is prepayable, subject to prepayment premium equal to greater of 2% of amount prepaid or yield maintenance. Loan is included in “Mortgage and other liabilities of real estate assets held for sale” in the accompanying consolidated balance sheets. We intend to work with the lender on extending the maturity of this loan and to repay it upon closing of the proposed sale of this property, but there can be no assurance that we will be successful in doing so.

(2)

Loan may be prepaid at any time with 10 days prior written notice. Monthly payments include principal and interest. Loan is included in “Mortgage and other liabilities of real estate assets held for sale” in the accompanying consolidated balance sheets.

(3)

Loan is prepayable subject to prepayment premium equal to greater of 1% of principal balance of loan or yield maintenance. No premium is due after May 11, 2016.

(4)

Loan may be prepaid subject to payment of a yield maintenance-based prepayment premium; no premium is due after June 11, 2016. Loan may also be defeased.

(5)

Loan may be prepaid subject to payment of a yield maintenance-based prepayment premium; no premium is due after June 11, 2016.

(6)

Loan is prepayable, subject to prepayment premium equal to greater of 1% of amount prepaid or yield maintenance. No premium is due after August 11, 2016.

(7)

The revolving line of credit matures on December 31, 2015. See “Revolving Line of Credit” below.

Revolving Line of Credit

On September 2, 2009, we entered into a Credit Agreement, referred to as the FHB Credit Facility, with First Hawaiian Bank, or the Lender. The FHB Credit Facility initially provided us with a revolving line of credit in the principal sum of $10.0 million. On December 31, 2009, we amended the FHB Credit Facility to increase the maximum principal amount available for borrowing under the revolving line of credit to $15.0 million. On May 25, 2010, we entered into an amendment with the Lender to increase the maximum principal amount available for borrowing thereunder from $15.0 million to $25.0 million and to extend the maturity date from September 2, 2011 to December 31, 2013. On December 31, 2013, we entered into an amendment with the Lender to extend the maturity date from December 31, 2013 to December 31, 2015. Amounts borrowed under the FHB Credit Facility bear interest at a fluctuating annual rate equal to the effective rate of interest paid by the Lender on time certificates of deposit, plus 1.00%. We are permitted to use the proceeds of the line of credit for working capital and general corporate purposes, consistent with our real estate operations and for such other purposes as the Lender may approve. As of June 30, 2014 and December 31, 2013, we had outstanding borrowings of $25.0 million under the FHB Credit Facility.

As security for the FHB Credit Facility, as amended, Shidler LP, a Hawaii limited partnership controlled by Mr. Shidler, has pledged to the Lender a certificate of deposit in the principal amount of $25.0 million. As a condition to this pledge, the Operating Partnership and Shidler LP entered into an indemnification agreement pursuant to which the Operating Partnership agreed to indemnify Shidler LP from any losses, damages, costs and expenses incurred by Shidler LP in connection with the pledge. In

35

Pacific Office Properties Trust, Inc.

addition, to the extent that all or any portion of the certificate of deposit is withdrawn by the Lender and applied to the payment of principal, interest and/or charges under the FHB Credit Facility, the Operating Partnership agreed to pay to Shidler LP interest on the withdrawn amount at a rate of 7.00% per annum from the date of the withdrawal until the date of repayment in full by the Operating Partnership to Shidler LP. Pursuant to this indemnification agreement, as amended, the Operating Partnership also agreed to pay to Shidler LP an annual fee of 2.00% of the entire $25.0 million principal amount of the certificate of deposit.

The FHB Credit Facility contains various customary covenants, including covenants relating to disclosure of financial and other information to the Lender, maintenance and performance of our material contracts, our maintenance of adequate insurance, payment of the Lender’s fees and expenses, and other customary terms and conditions.

Subordinated Promissory Notes

At June 30, 2014 and December 31, 2013, we had promissory notes payable by the Operating Partnership to certain current and former affiliates in the aggregate outstanding principal amounts of $29.4 million and $21.1 million, respectively.

In 2008, we issued $21.1 million of promissory notes as consideration for having funded certain capital improvements prior to the completion of our formation transactions and upon the exercise of an option granted to us by POP Venture, LLC (“Venture”) and its affiliates as part of our formation transactions in 2008. The promissory notes accrue interest at a rate of 7%, per annum, with interest payable quarterly, subject to the Operating Partnership’s right to defer the payment of interest for any or all periods until the date of maturity. The promissory notes were originally scheduled to mature on various dates commencing on March 19, 2013 through August 31, 2013, but the Operating Partnership elected to extend the maturity for one additional year. In February 2014, we agreed with the holders of these notes to extend the maturity date of the notes to December 31, 2015.

In February 2014, we issued to certain current and former affiliates additional promissory notes in the aggregate principal amount of $8.3 million to settle claims under tax protection agreements relating to the sale of our First Insurance Center property in 2012. These promissory notes accrue interest at a rate of 5% per annum, with interest payable quarterly, subject to the Operating Partnership’s right to defer the payment of interest for any or all periods until the date of maturity. The stated maturity date for each of these promissory notes is December 31, 2015.

The maturity of the Operating Partnership’s promissory notes will accelerate upon the occurrence of an underwritten public offering of at least $75 million of the Company’s common stock, the sale of all or substantially all of the Company’s assets or the merger or consolidation of the Company with another entity, and specific to the promissory notes issued in February 2014, will also accelerate under certain circumstances in the event that the security pledged by Shidler LP in support of the FHB Credit Facility is withdrawn, terminated or decreased prior to December 31, 2015. The promissory notes are unsecured obligations of the Operating Partnership and are subordinated to borrowings under the FHB Credit Facility and our indemnification obligations to Shidler LP in connection with its pledge in support of the FHB Credit Facility.

For the period from March 20, 2008 through June 30, 2014, interest payments on these promissory notes have been deferred with the exception of $0.3 million which was related to notes exchanged for shares of common stock in 2009. At June 30, 2014 and December 31, 2013, $11.4 million and $10.1 million, respectively, of accrued interest attributable to these promissory notes is included in the accompanying consolidated balance sheets.

Off-Balance Sheet Arrangements

The mortgage debt that we maintain for our consolidated properties and unconsolidated joint venture properties is typically property-specific debt that is non-recourse to our Operating Partnership, except for customary recourse carve-outs for borrower misconduct and environmental liabilities. The recourse liability for borrower misconduct and environmental liabilities was guaranteed by Mr. Reynolds. Our Operating Partnership has agreed to indemnify Mr. Reynolds to the extent of his guaranty liability. This debt strategy isolates mortgage liabilities in separate, stand-alone entities, allowing us to have only our property-specific equity investment at risk, except to the extent of the recourse carve-outs. In management’s judgment, it would be remote for us to incur any material liability under these indemnities that would have a material adverse effect on our financial condition, results of operations or cash flows.

Inflation

We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. Because the majority of our leases require tenants to pay most operating expenses, including real estate taxes, utilities, insurance,

36

Pacific Office Properties Trust, Inc.

and increases in common area maintenance expenses, we do not believe our exposure to increases in costs and operating expenses resulting from inflation is material. Furthermore, the majority of our existing leases contain contractual annual rental rate increases, which will at least partially offset the effect of inflation on our operating results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures -

As required by Rule 13a-15(b) of the Exchange Act, in connection with the filing of this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2014, the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting -

There have been no changes in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Pacific Office Properties Trust, Inc.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, are expected by us to have a material effect on our business, financial condition or results of operation if determined adversely to us.

Item 1A. Risk Factors.

Important factors that could cause our actual results to be materially different from the forward-looking statements include the risks factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes to the risk factors set forth in that report. In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

As previously disclosed, on May 27, 2014, we entered into a Purchase and Sale Agreement to sell our fee and leasehold interests in our Clifford Center property, located in Honolulu, Hawaii, to McKinney Capital Group. On August 12, 2014, we entered into the Eighth Amendment of the Purchase and Sale Agreement with McKinney Capital Group. Pursuant to the Eighth Amendment, the completion of the sale transaction is scheduled to occur no later than October 3, 2014, subject to customary closing conditions, for aggregate consideration of $9.3 million, including the assumption of an existing loan encumbering the property amounting to $4.6 million as of June 30, 2014.

Other than this Purchase and Sale Agreement, as amended, there are no material relationships between us and McKinney Capital Group. There is no assurance that the proposed sale of our Clifford Center property will be completed because the transaction is subject to a variety of factors and contingencies, including customary closing conditions.

Item 6. Exhibits.

Exhibit No.

Description

3.1

Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 001-09900) and incorporated herein by reference).

3.2

Articles Supplementary of the Company dated November 20, 2009 (previously filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 001-09900) and incorporated herein by reference).

3.3

Articles of Amendment of the Company dated November 20, 2009 (previously filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 001-09900) and incorporated herein by reference).

3.4

Articles of Amendment of the Company dated January 5, 2010 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 5, 2010 (File No. 001-09900) and incorporated herein by reference).

3.5

Articles Supplementary of Board of Directors Reclassifying and Designating a series of common stock as Senior Common Stock, dated March 4, 2010 (previously filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed March 9, 2010 (File No. 001-09900) and incorporated herein by reference).

38

Pacific Office Properties Trust, Inc.

Exhibit No.

Description

3.6

Certificate of Correction to Articles Supplementary, dated April 30, 2010 (previously filed as Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 001-09900) and incorporated herein by reference).

3.7

Articles of Amendment of the Company dated November 1, 2010 (previously filed as Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-09900) and incorporated herein by reference).

3.8

Articles of Amendment of the Company dated May 21, 2012 (previously filed as Exhibit 3.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 001-09900) and incorporated herein by reference).

3.9

Amended and Restated Bylaws dated December 20, 2010 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 27, 2010 (File No. 001-09900) and incorporated herein by reference).

10.1

Purchase and Sale Agreement, dated May 27, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.2

Amendment of Purchase and Sale Agreement, dated July 11, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.3

Second Amendment of Purchase and Sale Agreement, dated July 14, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.4

Third Amendment of Purchase and Sale Agreement, dated July 25, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.5

Fourth Amendment of Purchase and Sale Agreement, dated July 31, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.6

Fifth Amendment of Purchase and Sale Agreement, dated August 5, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.7

Sixth Amendment of Purchase and Sale Agreement, dated August 7, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.8

Seventh Amendment of Purchase and Sale Agreement, dated August 11, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

10.9

Eighth Amendment of Purchase and Sale Agreement, dated August 12, 2014, between City Center Land Company, LLC and City Center, LLC and McKinney Capital Group (Filed herewith.)

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